Discussion Paper

No. 2014-42 | October 23, 2014
Resurgence of Instrument Variable Estimation and Fallacy of Endogeneity
(Submitted for Survey and Overview)

Abstract

This paper investigates the nature of the IV method for tackling endogeneity. By tracing the rise and fall of the method in macroeconometrics and its subsequent revival in microeconometrics, it pins the method down to an implicit model respecification device—breaking the circular causality of simultaneous relations by redefining it as an asymmetric one conditioning on a non-optimal conditional expectation of the assumed endogenous explanatory variable, thus rejecting that variable as a valid conditional variable. The revealed nature explains why the IV route is popular for models where endogeneity is superfluous whereas measurement errors are of the key concern.

JEL Classification:

B23, C13, C18, C50

Assessment

  • Downloads: 1911

Links

Cite As

Duo Qin (2014). Resurgence of Instrument Variable Estimation and Fallacy of Endogeneity. Economics Discussion Papers, No 2014-42, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2014-42


Comments and Questions


Anonymous - Referee Report 1
November 12, 2014 - 08:43

see attached file


Anonymous - Referee Report 2
December 11, 2014 - 11:59

see attached file


Duo Qin - Reply to Referee Reports
January 12, 2015 - 09:11

see attached files